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Elevator Pitch
My investment rating for Samsonite International S.A. (OTCPK:SMSOF) [1910:HK] stays as a Buy. I previously wrote about Samsonite International’s Q1 2021 performance and full-year fiscal 2021 business prospects in an article published on June 17, 2021.
The focus of the current write-up is Samsonite International’s near-term financial outlook, its potential catalysts, and the stock’s current valuations. Based on my analysis, Samsonite International is trading below fair value and has a number of visible growth drivers and re-rating catalysts. This explains why I have chosen to remain bullish on Samsonite International.
Readers should be aware that Samsonite International’s shares are traded on both the Hong Kong Stock Exchange and the Over-The-Counter or OTC market. The company’s OTC shares are reasonably liquid with a mean daily trading value of approximately $300,000 (source: S&P Capital IQ) for the past 10 trading days. US brokerages such as Interactive Brokers allow their clients to trade in Hong Kong-listed equities such as Samsonite International’s shares with the 1910:HK ticker symbol. As a reference, the 10-day average daily trading value of Samsonite’s Hong Kong-listed shares was considerably higher at $20 million.
Favorable Financial Outlook
Samsonite International outlined the company’s expectations of a +7%-12% constant-currency top line expansion with higher gross profit margin for full-year FY 2024 in an investor roadshow organized by Mainland Chinese stockbroker CMB International at the beginning of this year.
The company’s management comments are in line with the sell-side analysts’ consensus financial forecasts as per S&P Capital IQ data. Specifically, the market sees Samsonite International’s revenue increasing by +11.3% to $4,142 million in FY 2024, and SMSOF’s gross profit margin is projected to expand by +30 basis points to 59.6% in the current fiscal year. The sell-side analysts also estimate that Samsonite International’s normalized net profit margin will improve by +0.4 percentage points from 10.5% for FY 2023 to 10.9% in FY 2024.
I take the view that Samsonite International is able to deliver decent sales growth and meaningful profitability improvement in this fiscal year, considering the outlook for the company’s Asian geographic market and the Tumi brand.
In a December 6, 2023 press release, the International Air Transport Association or IATA forecasted that the European and North American airline industries would have been in the black last year and noted its expectations that the airline industry in Asia-Pacific will only turn profitable this year. In other words, the Asia-Pacific travel market is expected to play catch-up with North America and Europe in terms of recovery in the current year. At its most recent Q3 2023 results briefing, Samsonite International mentioned that it sees its Asian business growing at “a faster clip” than its businesses in other geographic markets at a “double-digit (percentage) growth for several years.”
Separately, SMSOF also noted at its latest quarterly earnings call that the company’s Tumi brand has the potential to double its yearly sales from the current $1 billion to $2 billion over time. Samsonite bought the Tumi brand in August 2016, and the revenue contribution from Tumi as a proportion of the company’s total sales has gone up from roughly 20% for FY 2019 to around 24% in 9M 2023. There is room for a further increase in the Tumi brand’s sales contribution going forward, as Samsonite has plans to expand Tumi’s presence in the European market and the women’s product segment.
Notably, Samsonite shared at the company’s third quarter earnings briefing that Tumi and Asia are the relatively higher-margin brands and geographic regions within its business portfolio. Therefore, it is realistic to expect faster revenue growth for Samsonite International’s Asian business operations and Tumi brand to translate into margin improvement as well.
Potential Catalysts
There are two potential catalysts for Samsonite International that deserve attention.
One potential catalyst is a secondary listing.
A January 9, 2024 article posted on Hong Kong financial news portal AAStocks made reference to a report from Morgan Stanley (MS) which claimed that “the management of Samsonite plans to proceed with a secondary listing in the middle of this year (2024).” Earlier, Bloomberg reported on a potential US secondary listing for Samsonite International in August last year. Samsonite derived 8% of its full-year FY 2022 revenue from Mainland China and Hong Kong combined, while the company earned 39% and 23% of its FY 2022 top line from North America and Europe, respectively. This explains why Samsonite, which is now primary listed in Hong Kong, could potentially attract the attention of more investors and command higher valuations with secondary listings in the US or Europe given its larger sales exposure to these regions.
The other potential catalyst is a resumption of dividend payments.
Samsonite International hasn’t paid a dividend since July 2019, or after the COVID-19 outbreak. But the analysts are currently expecting the company to announce a final dividend of $0.06 per share for FY 2023 and distribute FY 2024 dividends per share amounting to $0.11 (source: S&P Capital IQ). As mentioned in the preceding section, Samsonite International’s financial outlook is positive, which supports the case for distributing dividend payments again. Moreover, the company did indicate at its 1H 2023 results call that it has the intention to pay out dividends to shareholders again. If Samsonite International does resume dividend distributions, this should help the listed company to attract new income-focused investors.
Undemanding Valuations
I view Samsonite International shares as undervalued.
Samsonite International is now trading at a consensus next twelve months’ normalized P/E multiple of 9.7 times (source: S&P Capital IQ). This is substantially below the stock’s historical three-year and five mean P/E ratios of 16.6 times and 17.6 times, respectively prior to the COVID-19 pandemic.
The stock is also trading below fair valuation based on a comparison of its earnings multiple and its earnings growth rate. Samsonite International’s Price-to-Earnings Growth or PEG metric is calculated to be 0.81 times or below 1, based on its consensus FY 2024-2025 normalized EPS CAGR of +12.0% and its consensus next twelve months’ P/E ratio of 9.7 times.
Closing Thoughts
Samsonite International continues to be rated as a Buy. I see no reason to change my existing bullish view on the name, taking into account its undemanding valuations, re-rating catalysts, and growth drivers.
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
